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Tax Connect Flash | France: principal measures of the second amending finance bill for 2012, proposed on 4 July 2012

The French Government has just announced a new supplementary budget for 2012 which should enable France to meet its deficit reduction commitments. This plan increases taxes by EUR 7.2 billion.

This bill will be discussed in Parliament in July. The final text is expected to be promulgated in early August.

The main measures of the bill are set out below:

I – Corporations

  •  Loss carry-forward and change of activity. Currently, the right to carry forward tax losses can be lost in the event of a major change in the company’s activity. However, the concept of change of activity is not defined by the French tax code. The bill therefore contains a broad definition of the concept, limiting opportunities to carry losses forward.
  • Transfer of losses upon restructuring: under French law, losses cannot be transferred to another company unless prior approval is obtained from the tax authorities. Such approval is automatic where certain conditions are met. The bill would change these conditions so as to prevent losses being transferred to companies which do not maintain their clientele, employees or fixed assets for at least 3 years. These changes would apply to financial years ending on or after 4 July 2012.
  • Intragroup waivers of debt granted for financial reasons would become non deductible for financial years ending on or after 4 July 2012.
  • Dividend distributions would be subject to a 3% tax charge. This tax is being presented by the Government as a surcharge on corporate income tax, to be borne by the company making the distribution. The surtax would not apply if that company is a small or medium-sized enterprise which does not belong to a group. Equally, it would not apply if the recipient is a foreign collective investment fund or a parent company which holds more than 10% of the share capital of the entity making the distribution and is subject to the EU or French parent-subsidiary tax exemption.
  • The withholding tax on French dividends distributed to foreign collective investment funds would be abolished.
  • The rate of financial transaction tax would be doubled (from 0.1% to 0.2%) as from 1 August 2012 (the date the tax comes into force).
  • Concerning employer contributions, the bill would abolish the social security contributions exemption for employee overtime, except for companies having less than 20 employees. The exemption for employee contributions is likely to be repealed in the 2013 finance bill, probably with retroactive effect. The employer contribution on stock-options and bonus shares would be increased to 30% (and the rate of the employee contribution would be increased to 10%) with effect from 1 September 2012. Also, contributions on employee savings funds would be increased from 8% to 20%.
  • Tax on oil products stored in France: Oil companies, refiners and traders, whether established in France or not, would be subject to a surcharge on oil products stored in France. The surcharge would be 4% of the value of the average volume of oil stored during the last three months of 2011.

II – Individuals

  • An exceptional wealth tax “contribution” for 2012, calculated according to the progressive scale that applied up to 2011 (i.e. at rates ranging from 0.55% to 1.8%), would apply to resident taxpayers whose taxable net assets exceed EUR 1.3 million. The wealth tax paid in June 2012 would be set off against the new surcharge, which would be payable by 15 November 2012.
  • Gift and inheritance taxes would rise: although the tax rates would remain the same, the personal allowance applicable as between parents and children would be reduced from 159,325 euros to 100,000 euros.
  • Income and capital gains derived by non resident persons from immovable property located in France would be subject to a new 15.5% tax. This would be a major change in non-resident taxation.

III – Others

The standard VAT rate of 19.6% would remain the same, even though an amending finance law passed before the presidential election had envisaged an increase as of October 2012.


Daniel GutmannPartner - CMS Bureau Francis Lefebvre


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Daniel Gutmann